Pound and UK bonds slide as Reeves ditches plans for income tax hike – business live

8.54am GMT This has all left investors '“scratching their heads” and expecting a “death by a thousand cuts” kind of budget, if Reeves hopes to find money to fund key policies including ramped up UK defence commitments, according to XTB’s research director Kathleen Brooks: The u-turn on income tax rises, while better for growth in a service-based economy, does leave markets scratching their heads about how to fund scrapping the two child benefit cap, the ballooning benefits bill and Britain’s defense commitments. Instead, the budget is likely to be death by a thousand cuts, in the form of hundreds of tax rises announced on the 26th, which one source called a smorgasbord of fiscal choices for the chancellor. 8.46am GMT Kathleen Brooks, research director at XTB notes that Reeves’ change of plans is essentially leaving policy pledges unfunded, with the chancellor now faced with finding an alternative way to raise money to fill an estimated £30bn fiscal hole in (checks watch) less than 2-weeks. Brooks says: This also means that the chancellor has signalled billions of unfunded spending pledges, which the bond market is not fond of. Hence why yields are rising sharply across the curve. The 10-year yield is higher by 10bps, while the 2-year yield is higher by 9bps at the open. 30-year yields are taking an even bigger hit and are higher by 12bps. Bond market volatility is not what the chancellor wants to see with less than two weeks to go before the budget. Essentially, the bond market is warning the chancellor that she cannot merely tax the ‘rich’ to fund her lavish spending pledges. Either she broadens the tax base, or she cuts spending. Updated at 8.51am GMT 8.33am GMT Sterling and FTSE 100 slide on budget jitters The pound has taken a hit, falling nearly 0.5% on the dollar to $1.3129 and weakening against the euro. Meanwhile the FTSE 100 has lost about 1.1%, with its listed banks – often a bellwether for the UK economy – having taken a tumble. Barclays, Lloyds and NatWest all have fallen 3.1-3.5% after the market open. 8.21am GMT UK gilt yields rise as investors digest Reeves income tax u-turn We’re getting some market moves as investors digest Rachel Reeves’ change in plans on income tax ahead of the autumn budget. In the bond market, the yield on the UK’s 30-year gilt is up 12 basis points, suggesting there is a perception of growing risk to the fiscal position. The yield on the 20-year gilt, meanwhile, was sitting at 5.225%, also up 12 basis points on the day Reuters says this is putting long-dated gilts on track for their worst day since July 2, when a Reeves’ tearful appearance in parliament spooked investors. 8.01am GMT Culture secretary Lisa Nandy has weighed in on the chancellor’s plans to drop awhat would have been a manifesto-breaking income tax hike this morning. Nandy told Sky News that Rachel Reeves remains “completely focused” on the public interest, but added it would not be “helpful or right” to speculate about what is in the November 26 budget. When asked if the latest reported u-turn made it look like the Labour government' didn’t know what it was doing, Nandy said: I’ve known the Chancellor well for 15 years now, and I can tell you that she is solely and fiercely focused on the challenges facing the country and doing what is in the best interests of the country. She’s never been shy of facing people down in order to do that in opposition and in government. Over the course of the last few weeks, obviously I’ve had some discussions with her and her team about measures in the budget that may affect my department, proposals that we’re making, and discussions that ordinarily happen across government, and in every one of those discussions, it’s been the public interest that she’s completely focused on. 7.53am GMT Introduction: Reeves backs off income tax hike; China sees further factory slowdown Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy. We start the day with a u-turn from the Labour government, with chancellor Rachel Reeves set to abandon a plan to raise income tax in her 26 November budget. The chancellor had previously informed the budget watchdog of plans to raise income tax – breaking one of Labour’s key manifesto pledges. But the Guardian has since confirmed that those main measures have been ditched. The Financial Times, which first broke the story, has reported that Reeves may instead look at thresholds at which people pay tax (which is likely to be seen as an income tax rise by stealth). However, Reeves is now likely to have to rely on a string of small tax hikes in order to fill what is expected to be a multibillion-pound “hole” in the public finances, sparked by weaker productivity and u-turns on other policies including cuts to the winter fuel allowances and disability benefits. On the other side of the world, China is reeling as freshly released data showed factory output and retail sales grew at their weakest pace in over a year in October. Industrial output grew 4.9% year-on-year in October, according to China’s National Bureau of Statistics (NBS) marking the weakest annual pace of growth since August 2024. That was down from a 6.5% rise in September, and fell short of the 5.5% forecasted in a Reuters poll. Meanwhile, retail sales – a key sign of consumer confidence and spending – expanded 2.9% last month, also marking the worst pace since August last year that was down from a 3.0% rise in September. The figures will pile further pressure on policymakers in Beijing to do more to support China’s export-driven economy, as they face further risks from a trade war with the US and weak domestic demand. On top of the agenda items below, we’re also expecting a Q2 update from Jaguar Land Rover later this morning. Stay tuned! The agenda 10am GMT: Eurozone trade balance for Q3 10am GMT: Second estimate of eurozone GDP in Q3 + employment data